The proposed revision of the Sustainable Finance Disclosure Regulation (SFDR) marks a fundamental shift from a disclosure framework towards a product categorisation regime. While this evolution has the potential to improve investor protection and reduce greenwashing, it also raises a new regulatory challenge: ensuring that sustainability categories convey meaningful, credible and substantiated claims.
In this policy note, Frédéric Ducoulombier proposes a framework for substantiated categorisation, arguing that financial products should not qualify for sustainability categories solely by meeting formal eligibility criteria. Instead, qualification should also demonstrate a coherent link between a product's objective, its investment strategy, the mechanisms through which it allocates capital, the indicators used to monitor progress, and its plausible contribution to the transition of the real economy.
The note assesses the European Commission's proposal alongside the positions of the European Parliament's Committee on Economic and Monetary Affairs (ECON) and the Council. It welcomes the move towards a dedicated product categorisation regime while identifying remaining inconsistencies, including differentiated qualification routes that risk weakening the credibility of the future framework.
To complete the SFDR reform, the paper recommends combining objective qualification criteria with process-based substantiation, applying coherent standards across all product categories while allowing flexibility for different investment approaches. It also argues that greater transparency should not only help investors distinguish between products but also encourage continuous improvements in investment methodologies, market practices and the sustainable finance framework itself.
Ultimately, the note concludes that strengthening product categorisation is only one part of a broader challenge. Delivering meaningful sustainable finance will also require stronger corporate sustainability information, coherent regulatory incentives and policy frameworks capable of supporting the transition of the real economy.
